MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The following table sets forth the change in amounts and percentage change
between years of certain revenue, expense and operating items:
(in thousands except tractor data)
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Changes in Results of Operations
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1993 vs. 1992 1992 vs. 1991
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Increase Increase
(Decrease) % (Decrease) %
in Amounts Change in Amounts Change
------------- ------ ------------- ------
Operating revenues $108,939 12 % $178,694 24 %
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Average number of tractors in the fleet 466 7 1,138 22
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Operating expenses:
Salaries, wages and employee benefits 23,877 7 54,582 19
Purchased transportaton and spotting 76,147 68 60,399 118
Fuel and fuel taxes (3,033) (2) 10,399 9
Depreciation (3,615) (4) 17,714 26
Operating supplies and expenses 6,296 9 8,209 14
Insurance and claims (3,049) (7) 9,263 27
Operating taxes and licenses 3,177 12 3,899 18
General and administrative expenses 419 2 3,390 22
Communication and utilities (816) (7) 1,174 11
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Total operating expenses 99,403 12 % 169,029 25 %
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Operating income $9,536 14 % $9,665 16 %
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The following table sets forth certain industry operating data of the Company.
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Years Ended December 31
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1993 1992 1991 1990 1989
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Total loads 1,081,013 960,031 796,929 596,574 536,448
Average number of tractors in the
fleet during the year 6,890 6,424 5,286 4,413 3,616
Tractors operated (at year end) 6,775 7,004 5,843 4,729 4,096
Trailers/containers (at year end) 19,089 17,391 12,389 10,563 9,339
Average tractor miles per load 615 693 724 839 870
Tractor miles (in thousands) 718,767 733,700 638,926 551,175 495,377
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RESULTS OF OPERATIONS
OPERATING REVENUES
Operating revenues increased 12% from 1992 to 1993, and 24% from 1991 to
1992. The increase in revenue was primarily a result of continued growth of
railroad (intermodal) volume and specialized carrier operations. The average
number of tractors in the fleet increased 7% from 1992 to 1993 and 22% from 1991
to 1992. Fleet size and revenue growth were negatively impacted by a shortage of
qualified drivers during the second half of 1993. Average rate increases of 2%
in 1993 and 1% in 1992 also enhanced revenue growth.
Revenue from specialized carrier operations such as flatbed, special
(hazardous) commodities, dedicated contract and logistics services was 14%, 8%
and 4% of total operating revenue, respectively in 1993, 1992 and 1991. The
company offers a broad range of services and alternative modes of
transportation. Arrangements with nine railroads allow the company to transport
freight utilizing a combination of truck and rail mediums.
See Note 1(d) of the Notes to Consolidated Financial Statements for a
discussion of the change in accounting principle during 1991 related to the
method of recognizing revenue for shipments in transit.
OPERATING EXPENSES
Operating expenses of transportation companies would frequently be expected
to vary between years in proportion to changes in operating revenues and tractor
fleet size. Due to the company's significant utilization of intermodal and third
party transportation services, the relationship of operating expense to
operating revenues and fleet size has changed. Certain expenses related to
drivers and revenue equipment such as salaries, wages and employee benefits;
fuel and fuel taxes; depreciation and operating supplies and expenses have
shifted to the category of purchased transportation and spotting.
Salaries, wages and employee benefits increased during 1993 and 1992 in
approximate proportion to the growth of the tractor fleet. No significant
changes in the rates of employee salaries and wages were experienced. Purchased
transportation and spotting expense increases reflect the significant growth in
the utilization of intermodal and third party transportation services. Fuel and
fuel taxes decreased from 1992 to 1993, reflecting a decrease in total tractor
miles due to utilization of intermodal and third party transportation services.
Improved fuel
miles per gallon in 1993 also reduced fuel expense. Fuel cost per gallon
increased slightly during 1993, but was more than offset by the above items.
Fuel cost per gallon declined approximately $.03 during 1992. This decrease and
the growth of intermodal resulted in fuel and fuel tax expense increasing by
only 9 percent while the tractor fleet grew by 22 percent.
The decrease in depreciation expense from 1992 to 1993 reflects gains on
the disposition of revenue equipment and a change in the estimated salvage value
on certain revenue and service equipment (see Note 1(c) of the Notes to
Consolidated Financial Statements). Depreciation expense increased from 1991 to
1992 primarily due to the increase in the size of the tractor fleet.
Operating supplies and expenses increased during 1993 in relative
proportion to the fleet size. The change in operating supplies and expenses from
1991 to 1992 was impacted by a change in the method of accounting for tires (see
Note 1(b) of the Notes to Consolidated Financial Statements).
Insurance and claims expense in 1993 reflected a significant reduction in
accident frequency. The Company implemented a series of programs during late
1992 and early 1993 directed at reducing accidents. Insurance and claims expense
increased during 1992 due to an increase in the level of self-insurance elected
by the company and an increase in accident frequency.
Operating taxes and licenses reflect the increase in the size of the fleet
and rate increases enacted by various state regulatory agencies. General and
administrative expenses were favorably impacted during 1993 by changes which
reduced legal, professional service and certain driver training costs.
Communications and utilities expense declined during 1993 primarily due to
certain rate reductions applicable to voice communications and the
implementation of on-board communication devices in a portion of the Company's
fleet. Rate reductions were also achieved during 1992.
Interest expense increased during 1993 primarily due to higher levels of
long-term debt associated with the acquisition of new containers and chassis.
The effective income tax rate increased to 41% in 1993, due primarily to
the increased federal tax rate on both current and deferred income taxes,
effective retroactive to January 1, 1993. The effective tax rate in 1992 was
36.5%, down from 39.5% in 1991, primarily due to a settlement with the Internal
Revenue Service of a tax case dealing with several prior years.
EARNINGS
The Company intends to continue expanding its utilization of intermodal
operations. Accordingly, a substantial capital investment in newly-designed,
multi-purpose containers and chassis was made during 1993 and is planned for the
next two to three years. This strategy involves the disposition of significant
numbers of van type trailers. Future earnings may be favorably or unfavorably
impacted by market prices for used revenue equipment or other factors related to
this transition.
LIQUIDITY AND CAPITAL RESOURCES
The growth of the company's business and the commitment to new technology
in terms of containers, chassis and on-board tractor communication devices has
resulted in significant capital investments during 1993 and 1992. Net capital
investments were $197 million in 1993, $249 million in 1992 and $113 million in
1991. These expenditures were funded with cash generated from operations and
proceeds from long-term debt. Accounts receivable at December 31, 1993 includes
approximately $29 million related to sales of revenue equipment for which funds
were received during the first quarter of 1994.
In July 1993, the company filed a shelf registration statement for an
aggregate principal amount of $250 million of debt securities to be issued on
terms to be determined at the time of sale. In September, 1993, the shelf
registration was utilized to issue $100 million of 6.25% unsecured notes which
are due 2003. This was the initial public offering of debt securities for the
company. The company received approximately $56 million from a secondary
offering of common stock completed in 1992. Net proceeds from these offerings
were used initially to reduce indebtedness outstanding under the company's
commercial paper program. Proceeds from the commercial paper program are
typically utilized to supplement cash provided by operating activities and fund
the acquisition of revenue equipment, on-board communication devices and other
funding requirements.
The company has committed to purchase approximately $208 million of revenue
and service equipment (net cost after expected proceeds from sale or trade-in
allowances of $24 million). The company expects to fund future capital
expenditures from cash provided by operating activities and proceeds from
long-term debt. Approximately $100 million of uncommitted lines of credit were
available at December 31, 1993, with no outstanding borrowings.